In his recent survey of the winners of the first week of free agency, ESPN Insider's John Hollinger makes a point we rarely see in this type of column -- maybe the losers outnumber the winners when it comes to free agency.

"Over the past two years, 34 different players signed free-agent deals worth at least $35 million," writes Hollinger. "Of those, by my count, there are at least 15 whose teams would gladly give them away if they could. I mean literally give them away, just to be rid of the contract. ... Beyond those, there are at least another five whose teams deeply regret signing them (or should) ... .

"Twenty busts out of 34 contracts. Isn't that amazing, considering these teams are the supposed "winners" of free agency? And shouldn't that be a huge signal that teams ought to be more careful in taking risks like this in the free agent market?"

Hollinger basically leaves the questions as rhetorical, but I'm interested in looking into them more deeply and studying the free-agent market not from the perspective of a single class or winners or losers but instead the theory of free agency and how it helps (and hurts) teams.

So let's start with the question of why the track record of big free-agent signings is so poor. One argument is that it is simply the result of poor evaluation by NBA teams. However, using advanced statistics is hardly a panacea. For example, some clown argued two years ago that Robert Horry - who ended up scoring 21 points and hitting the game-winning 3-pointer in Game 5 of the NBA Finals - was a less-valuable free agent than Vin Baker. That clown, of course, was me.

Hollinger's track record that same off-season was far from spotless. Steve Nash, the NBA's MVP each of the last two seasons, topped Hollinger's list of overvalued free agents. The undervalued list included Marquis Daniels and Stromile Swift, both recently traded; Brian Cardinal, on Hollinger's list of players teams would gladly give away; and Rodney White, who was not on an NBA team during the 2005-06 season.

Some of the issues with free agency can probably be explained with a common concept in baseball known as "the winner's curse." When I started researching this column, I didn't believe anyone had ever written about the winner's curse in any depth in regard to basketball, but lo and behold, Matthew Yglesias put together a few paragraphs on the concept in response to the same Hollinger column. It and the comments that follow are worth reading.

"In the 1950s, when the term winner's curse was first coined, there was no accurate method to estimate the potential value of an offshore oil field. So if, for example, an oil field had an actual intrinsic value of $10 million, oil companies might guess its value to be anywhere from $5 million to $20 million. The company who wrongly estimated at $20 million and placed a bid at that level would win the auction, and later find that it was not worth as much."

Naturally, you can know about the winner's curse and still fall victim to it. In one of my business classes, our professor put us through a simulation to teach about the winner's curse where we had to bid on a jar of change based on our estimate of how much was inside of it. I already knew the winner's curse from baseball, but still my group ended up badly overestimating the value and overpaying. Is this really any different from an NBA GM looking at a player and seeing a more valuable contributor than what he ends up getting?

Well, yes. One aspect of the winner's curse that doesn't carry over from baseball is the fact that players do have wildly different values to different teams in the NBA because of how they play and complementary pieces on the roster. Take, for example, Nash. The Suns decided Nash was more valuable than the Mavericks did, but both might have been right. Nash has been perfect for Phoenix's up-tempo attack, while Dallas reached the NBA Finals without him because the Mavericks were able to improve defensively without sacrificing much offense.

Still, we are left the impression that the free-agent market seems designed to overpay players. Can we quantify this? I attempted to by taking salary data from Patricia Bender's Web site and sorting players into categories based on how their current contract was signed -- as an unrestricted free agent, as a restricted free agent, as an extension of their rookie contract, as a non-rookie extension, as a rookie contract (which all first-round picks receive) or as a second-round pick (no structure, but exclusive rights for the drafting team).

The most naïve way to evaluate this data is to look at how much teams paid above the league minimum on average for a minute played by a player in each category:

COST PER MINUTE

Type

Salary

Minutes

Cost per Minute

Rookie Extension

$292.2M

75,338

$3,877

Veteran Extension

$111.0M

21,694

$5,117

Restricted

$321.1M

129,610

$2,478

Unrestricted

$638.9M

203,291

$3,143

Rookie Contract

$155.8M

145,848

$1,068

Second Round

$4.0M

14,295

$268

Of course, there's a problem with this method; Joe Johnson played more minutes last season than Kobe Bryant, but that didn't make him more valuable. So let us instead use Wins Above Replacement Player from my rating system (hat tip to Dave Studeman of The Hardball Times for doing the same thing in baseball a couple of years ago):

COST PER WARP

Type

Salary

WARP

Cost per WARP

Rookie Extension

$292.2M

183.0

$1.596M

Veteran Extension

$111.0M

57.3

$1.936M

Restricted

$321.1M

192.1

$1.671M

Unrestricted

$638.9M

251.4

$2.541M

Rookie Contract

$155.8M

244.8

$0.637M

Second Round

$4.0M

0.5

$7.286M

It's clear from this data that players on rookie contracts are massively underpaid. A couple of years ago, Dan Rosenbaum looked at just how much young players drafted in the first round lost when the NBA went to rookie contracts in the 1995 CBA and concluded that it meant a $200 million difference - that money going from young players to veterans.

(Note also that extensions appear by this method to be more cost-effective than signing players in free agency (rookie contract extensions result in the player foregoing restricted free agency; veteran extensions mean foregoing unrestricted free agent). However, this is because only starting-caliber players typically receive extensions. The free-agent groups include many players who are only slightly above replacement level but are paid more than the league's rookie minimum because of their experience. These players may be preferable to players available at the rookie minimum because of their leadership ability and other intangibles, but that isn't reflected by these stats.)

So if we've established that free agency is the least cost-efficient way to get a player, why bother with it at all? Well, first, to go back to economics, the market should even out the cost. That is, players with rookie contracts cost more in trade than players paid more, and draft picks are valued from the same perspective. That's not to say there aren't general managers who undervalue high draft picks, but generally the only way to get good picks is to lose a lot of games.

But the more important issue is that while efficiency is obviously a positive, the name of the game is to win efficiently, not just be efficient. How successful could a team composed solely of players on their rookie contracts really be? Barring a LeBron James- or Dwyane Wade-esque young superstar, it's hard to see such a team really contending.

A couple of years ago, I wrote an entire column on "The Economically Efficient NBA Team," arguing, "The ideal player remains someone who contributes to the team more than he costs in salary." But why? "Not only does he add to the bottom line, he gives the team salary-cap flexibility and allows it to take on other contracts."

Which contracts are these? Surprisingly, it's often the biggest ones.

"It isn't the high price of stars that is expensive, it's the high price of mediocrity," once mused former baseball owner Bill Veeck, and this seems to be the case; overpaying a little for an elite player (like Ben Wallace) or a player who fills a specific need for a contending team rarely ends up being a major problem.

When it comes to free agency, there's no need to stay out of the water, but proceed with caution.

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Kevin Pelton formerly wrote the "Page 23" column for Hoopsworld.com. He provides original content for both SUPERSONICS.COM and storm.wnba.com, where you can find more of his analysis of both the NBA and the WNBA. He can be reached at kpelton@hoopsworld.com.